Question 1

During the current year,a corporation sells equipment for $300,000.The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed.The results of the sale are
A)ordinary income of $90,000.
B)Sec.1231 gain of $90,000.
C)ordinary income of $60,000 and LTCG of $30,000.
D)ordinary income of $60,000 and Sec.1231 gain of $30,000.

Accepted Answer

The answer of During the current year,a corporation sells equipment...

Question 2

The following gains and losses pertain to Jimmy's business assets that qualify as Sec.1231 property.Jimmy does not have any nonrecaptured net Sec.1231 losses from previous years,and the portion of gain recaptured as ordinary income due to the depreciation recapture provisions has been eliminated.
  Describe the specific tax treatment of each of these transactions.

Accepted Answer

The answer of The following gains and losses pertain to...

Question 3

A taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.

Accepted Answer

This statement is true. Sec.1245 property includes certain types of personal property, and any gain realized on the sale of Sec.1245 property is generally treated as ordinary income rather than capital gain. However, if the sale price exceeds the original cost of the Sec.1245 property, any excess gain may be treated as Sec.1231 gain, which is preferentially taxed as long-term capital gain.

Question 4

A taxpayer acquired new machinery costing $50,000 three years ago.The taxpayer had elected Sec.179 expensing to deduct the full cost in the year of acquisition.The taxpayer sells the machinery this year and realizes a $32,000 gain.Sec.1245 will not require any ordinary income recapture on the sale of this asset due to the Sec.179 expensing.

Accepted Answer

When a taxpayer elects to expense property under Sec.179, they must recapture any excess deduction under Sec.1245 if they sell the property at a gain. Therefore, the statement is false. In this scenario, the taxpayer must recapture up to $18,000 of ordinary income under Sec.1245 (the excess of the cost over the basis after the Sec.179 deduction).

Question 5

Sec.1245 applies to gains on the sale of depreciable personal property,but it generally does not apply to depreciable real property.

Accepted Answer

Sec.1245 of the Internal Revenue Code specifically applies to gains from the sale of depreciable personal property, such as equipment and machinery. It generally does not apply to depreciable real property, which is covered by different provisions such as Sec.1250.

Question 6

Terry has sold equipment used in her business.She acquired the equipment three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use.In order to recognize any Sec.1231 gain,she must sell the equipment for more than
A)$0.
B)$20,000.
C)$30,000.
D)$50,000.

Accepted Answer

The answer of Terry has sold equipment used in her...

Question 7

The following gains and losses pertain to Arnold's business assets that qualify as Sec.1231 property.Arnold does not have any nonrecaptured net Sec.1231 losses from previous years,and the portion of gain recaptured as ordinary income due to the depreciation recapture provisions has been eliminated.
  Describe the specific tax treatment of each of these transactions.

Accepted Answer

The answer of The following gains and losses pertain to...

Question 8

The purpose of Sec.1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec.1231 treatment when the asset was sold.

Accepted Answer

The purpose of Sec.1245 is exactly as stated in the sentence, to prevent taxpayers from benefiting from both depreciation deductions and favorable Sec.1231 treatment upon sale of the asset.

Question 9

If the accumulated depreciation on business equipment held longer than one year exceeds realized gain on the sale of the equipment,all of the realized gain will be treated as Sec.1231 gain.

Accepted Answer

The answer of If the accumulated depreciation on business equipment...

Question 10

An unincorporated business sold two warehouses during the current year.The straight-line depreciation method was used for the first building and the accelerated method (ACRS)was used for the second building.Information about those buildings is presented below.  How much gain from these sales should be reported as section 1231 gain and ordinary income due to depreciation recapture by the owner of the business?
A) 
B) 
C) 
D)

Accepted Answer

The answer of An unincorporated business sold two warehouses during...

Question 11

If realized gain from disposition of business equipment exceeds total depreciation or cost recovery,a portion of the gain will receive Sec.1231 treatment if the equipment's holding period is more than one year.

Accepted Answer

This statement is true according to the rules of Sec.1231 treatment.

Question 12

If a taxpayer has gains on Sec.1231 assets,Secs.1245 and 1250 must be applied first to determine any amounts recaptured as ordinary income,and any excess gain may then be netted with Sec.1231 losses for possible long-term capital gain treatment.

Accepted Answer

This statement is true. Sec.1245 and 1250 are special rules that apply to certain types of property, and any gains from their sale must be recaptured as ordinary income before any remaining gain is eligible for long-term capital gain treatment. If there are Sec.1231 losses in the same tax year, they can be netted against the remaining gain to potentially reduce or eliminate the capital gain.

Question 13

The following are gains and losses recognized in 2016 on Ann's business assets that were held for more than one year.The assets qualify as Sec.1231 property.
  A summary of Ann's net Sec.1231 gains and losses for the previous five-year period is as follows:
  Describe the specific tax treatment of each of the current year transactions.

Accepted Answer

The answer of The following are gains and losses recognized...

Question 14

Section 1245 recapture applies to all the following except
A)depreciable personal property.
B)assets sold or exchanged at a loss.
C)total depreciation or amortization allowed or allowable.
D)amortizable intangible personal property.

Accepted Answer

Section 1245 recapture applies to depreciable personal property, total depreciation or amortization allowed or allowable, and amortizable intangible personal property. It does not apply to assets sold or exchanged at a loss.

Question 15

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are
A)LTCG of $30,000.
B)Sec.1231 gain of $30,000.
C)Sec.1245 ordinary income $30,000.
D)Sec.1250 ordinary income of $30,000.

Accepted Answer

The answer of During the current year,Hugo sells equipment for...

Question 16

This year Jenna had the gains and losses noted below on property,plant and equipment used in her business.Each asset had been held longer than one year.Jenna has not previously disposed of any business assets.  Jenna will recognize
A) 
B) 
C) 
D)

Accepted Answer

The answer of This year Jenna had the gains and...

Question 17

Sec.1245 can increase the amount of gain recognized on an asset.

Accepted Answer

The answer of Sec.1245 can increase the amount of gain...

Question 18

This year Pranav had the gains and losses noted below on property,plant and equipment used in his business.Each asset had been held longer than one year.  A review of Pranav's reporting of Sec.1231 transactions for the prior five years indicates a net Sec.1231 loss of $14,000 three years ago and a net Sec.1231 gain of $8,000 last year (before the five-year lookback).Pranav will recognize
A) 
B) 
C) 
D)

Accepted Answer

The answer of This year Pranav had the gains and...

Question 19

All of the following statements are true regarding Sec.1245 are true except
A)Sec.1245 does not apply to any buildings placed in service after 1986.
B)Sec.1245 applies to assets sold or exchanged at a gain or at a loss.
C)Sec.1245 property includes nonresidential real estate that qualified as recovery property under the ACRS rules unless the taxpayer elected to use the straight-line method of cost recovery.
D)Sec.1245 ordinary gain treatment applies to total depreciation or amortization allowed or allowable but not more than the realized gain.

Accepted Answer

Sec.1245 applies only to assets sold or exchanged at a gain, not at a loss.

Question 20

Sec.1245 ordinary income recapture can apply to buildings placed in service prior to 1987.

Accepted Answer

Section 1245 applies to any property, including buildings, and does not have a restriction on the year the property was placed in service. Therefore, Sec. 1245 ordinary income recapture can apply to buildings placed in service prior to 1987.

Quiz 13: Property Transactions: Section 1231 and Recapture

During the current year,a corporation sells equipment for $300,000.The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed.The results of the sale are

A taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.

Sec.1245 applies to gains on the sale of depreciable personal property,but it generally does not apply to depreciable real property.

Terry has sold equipment used in her business.She acquired the equipment three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use.In order to recognize any Sec.1231 gain,she must sell the equipment for more than

The purpose of Sec.1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec.1231 treatment when the asset was sold.

If the accumulated depreciation on business equipment held longer than one year exceeds realized gain on the sale of the equipment,all of the realized gain will be treated as Sec.1231 gain.

If realized gain from disposition of business equipment exceeds total depreciation or cost recovery,a portion of the gain will receive Sec.1231 treatment if the equipment's holding period is more than one year.

If a taxpayer has gains on Sec.1231 assets,Secs.1245 and 1250 must be applied first to determine any amounts recaptured as ordinary income,and any excess gain may then be netted with Sec.1231 losses for possible long-term capital gain treatment.

Section 1245 recapture applies to all the following except

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are

This year Jenna had the gains and losses noted below on property,plant and equipment used in her business.Each asset had been held longer than one year.Jenna has not previously disposed of any business assets. Jenna will recognize

Sec.1245 can increase the amount of gain recognized on an asset.

All of the following statements are true regarding Sec.1245 are true except

Sec.1245 ordinary income recapture can apply to buildings placed in service prior to 1987.